What Is a Deposit Bond? Rules, Risks and Deposit Funding Options
Property Lending
Deposit bonds · Cost and approval · Exchange to settlement
A deposit bond can let you exchange without handing the vendor a cash deposit, but it does not replace the cash or equity your lender requires for the purchase. This guide covers cost, approval, auctions, off-the-plan purchases, company and trust buyers, bank guarantees, expiry rules, funds to complete, and what to do if finance or settlement starts to fail.
Quick Answer
A deposit bond is a guarantee from an insurer that stands in for the contract deposit when you exchange. It is not the deposit your home-loan lender uses to calculate your contribution or LVR. You pay the bond issuer a one-off fee, but you still need the lender-approved cash or equity contribution and the rest of the purchase price by settlement.
The bond does not cover stamp duty, fix a low valuation or protect you if finance fails. If you default, the insurer can pay the vendor and recover the bond amount from you under the indemnity you signed.
Also called: deposit guarantee · deposit guarantee bond
What is a deposit bond?
A deposit bond replaces the cash deposit at exchange with an insurer's guarantee that the deposit will be paid. The vendor holds the bond instead of cash in a trust account, and the bond only turns into money if it is called, which normally means the buyer has defaulted.
That is the whole of what it does, and the point most buyers miss follows from it. Because no cash deposit changed hands at exchange, nothing has been paid off the price. The buyer pays the whole purchase price, plus duty and costs, on the settlement date. A bond buys time to find the deposit money; it does not reduce the money needed at the end.
Does a deposit bond replace the deposit your home-loan lender requires?
No. The contract deposit and your lender's required contribution are two different things. A deposit bond can stand in for the amount the contract says must be provided to the vendor at exchange, but your lender still calculates how much you must contribute from cash or equity, how much it will lend against its valuation, and whether the total funds to complete are available.
Sources: Moneysmart, Save for a house deposit,, read 23 September 2026. Lender policy still varies.For a self-employed buyer that is usually the attraction. Cash stays in the business or in an offset account until completion, and the purchase is funded in one piece when the loan draws down or a sale lands. Whether that is cheaper than short-term finance depends on the numbers in your deal, and we set out whether a bond is cheaper than a bridging loan separately. The wider set of property lending options sits on the hub.
What the published sources say a deposit bond is
- A stand-in for the cash deposit at exchange Moneysmart defines a deposit bond as something that "can be used in place of a deposit when a buyer exchanges contracts on a property. It guarantees that the buyer will pay the full deposit by an agreed date." Product terms vary by issuer.Source: Moneysmart, glossary, deposit bond, last updated 23 August 2019, read 23 September 2026.
- Usually 10 per cent in Victoria, set by the contract "There are no laws setting the amount of deposit for a property sale. The deposit is usually 10 per cent of the purchase price." The contract you sign sets the deposit. This is Victorian guidance; check the contract in other states.Source: Consumer Affairs Victoria, Property deposits for sellers, last updated 7 May 2021, read 23 September 2026. Victoria only.
- Up to 10 per cent, in one issuer's design One issuer's bond is designed for buyers who "need to provide a deposit of up to 10% of the price of a new residential or commercial property". This is one issuer's document; others set their own terms.Source: QBE Insurance (Australia) Limited, Target Market Determination, Deposit Bonds, QM9261-1021, first published 5 October 2021, read 23 September 2026.
Quoted from each source as read on 23 September 2026. General information, not a product recommendation.
How does a deposit bond work, step by step?
A deposit bond works in five steps: the vendor agrees to take one, the issuer checks you can pay the full price, you pay the issuer's fee and receive the bond, the bond goes to the vendor at exchange, and you pay the whole price at settlement. If you default instead, the vendor calls the bond and the insurer recovers the money from you.
A deposit bond from offer to settlement
- Confirm the vendor will accept a bond. Under the NSW standard contract the vendor must approve the issuer, the expiry date and the amount. Get the agent's confirmation in writing before you bid or sign.
- Get a quote and apply. The issuer checks that you will be able to pay the full price plus costs at settlement, either from evidence of funds to complete or, at one issuer, from equity in property you already own.
- Pay the one-off fee and receive the bond. At one major issuer the fee is paid after approval and the bond is then issued digitally, ready to give to the agent.
- Hand the bond over at exchange. The vendor holds the bond instead of a cash deposit in a trust account.
- Pay the whole price at settlement. Nothing came off the price at exchange, so the full amount is due, plus any duty not already paid. Under the NSW standard contract the vendor returns the bond on completion.
If you default, the vendor can call the bond, the insurer pays the vendor, and the insurer then recovers the amount from you under the indemnity you signed. Sources are cited in the sections below.
What if you win an auction above the amount your deposit bond covers?
If the winning bid is higher than the price the bond was sized for, the bond can be too small for the contract deposit. For example, a bond arranged on a $1 million purchase at a 10 per cent deposit covers $100,000. If you win at $1.1 million and the contract still requires 10 per cent, the deposit is $110,000. Do not assume the bond automatically increases after the hammer falls.
How much does a deposit bond cost?
A deposit bond costs a one-off fee that the issuer quotes for your purchase. There is no interest, because it is not a loan. At one major issuer, a short-term bond of up to six months is priced as a percentage of the bond amount, a long-term bond is priced on the bond amount and the term, and there are no other fees or ongoing charges.
Deposit Power does not publish its percentage. Deposit Bond Australia, the issuing agent for QBE deposit bonds, does publish a range: it puts the annualised cost of its bonds at 1.5 to 3.3 per cent, charges the fee once on approval with no ongoing charges, and says higher fees apply to more complex applications or financial structures. The lower figures repeated on broker and comparison sites do not appear on either issuer page we checked. Budget on a written quote for your purchase, and ask the issuer in writing what the fee covers and whether any part is refundable if the purchase falls over.
Source: Deposit Bond Australia, Deposit bonds product information, read 23 September 2026. One issuer's published range, not a quote.Scroll the table sideways to see every column.
| Bond type | Term available | How the fee is set | Typical use |
|---|---|---|---|
| Short-term bond | Up to six months | One-off fee, a percentage of the bond amount | Auctions and purchases with shorter settlement periods |
| Long-term bond | Up to five and a half years | One-off fee, based on the bond amount and the term | Extended settlements and off the plan purchases |
Can you get the deposit bond fee back if the purchase changes?
Sometimes, but refund rules are issuer-specific and narrow. Deposit Power considers a refund only if the bond has not been given to the vendor and the request reaches it within 30 days of issue, less a $290 administration fee for a short-term bond or $700 for a long-term bond. For a long-term bond it may also consider a rebate if the purchase settles with at least six months left before the bond expires. Get the refund and cancellation terms in writing before paying the fee.
Source: Deposit Power, Deposit Bond FAQs, read 23 September 2026. One issuer's policy, not an industry-wide rule.The comparison that matters is the fee against what the cash would do for you until settlement, whether that is sitting in an offset account or working in the business, and against the cost of short-term finance. That comparison is worked through in whether a bond is cheaper than a bridging loan.
Can a self-employed buyer or a company get a deposit bond?
Yes, but the evidence depends on the issuer. Every issuer tests whether you can pay the whole price plus costs at settlement. One will approve a short-term bond on equity in property you already own, with no loan approval letter. Another asks self-employed applicants for two past financial years of tax returns, notices of assessment and BAS, accepts companies, trusts and SMSFs, and requires director and shareholder guarantees on every corporate application.
The bond assessment is separate from the home-loan assessment. A self-employed buyer can satisfy an issuer and still have the lender ask different questions about credit history, public business records, bank-account data and current income evidence. The lender-side checks are mapped in what lenders check on a self-employed borrower.
The buyer does not have to be a person. QBE states that its deposit bonds "are available to individuals, companies and trusts", which matters for ABN holders buying through a company or a family trust. Its product page describes the bonds as suitable for existing property owners buying another property, investors expanding a portfolio, "or first home buyers with an unconditional loan approval", with short-term bonds of up to six months and long-term bonds of up to five years. That approval wording is tied to first home buyers on that one page, and other issuers set their own criteria. Source: QBE, Residential and Commercial Deposit Bonds, read 23 September 2026. One issuer; others set their own criteria.
Two issuers publish their approval routes in enough detail to compare, and they differ most on the points a business owner cares about: whether equity alone will do, what income evidence is needed, and who has to guarantee a company purchase.
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| Question | Deposit Power | Deposit Bond Australia, issuing QBE bonds |
|---|---|---|
| Short-term bond with a loan approval | Evidence of funds to complete, such as a loan approval letter, a savings statement or evidence of a financial gift; bonds up to six months | Unconditional finance approval from a recognised lender, with approvals subject to valuation accepted; bond term capped at six months |
| Without a loan approval | Equity in property you own of 1 times the deposit amount for bonds up to $150,000, or 2 times for bonds over $150,000 (short-term) | Equity in real estate, listed shares or term deposits you own, plus income to service all current and proposed debts; terms from 3 to 66 months |
| Long-term bonds | Equity only: 3 times the 10 per cent deposit for 7 to 24 months, 4 times for 25 to 36 months, 5 times for 37 to 66 months | Assessed without finance for all terms up to 66 months |
| Self-employed income evidence | Not set out separately on the page read | Two past financial years of earnings: tax returns, notices of assessment and BAS as applicable |
| Companies, trusts and SMSFs | Accepted, including a company as trustee for a trust; company directors must authorise the application and sign a Guarantee and Indemnity | Accepted; every corporate application must be supported by director and shareholder guarantees |
| Stated turnaround | Most short-term bonds approved instantly; long-term may take a few hours | About 4 business hours with finance approved; 24 to 48 hours without |
Does applying for a deposit bond involve a credit check?
It can. A deposit bond is not a loan, but it is still underwritten. QBE's privacy policy says it may analyse consumer credit history as part of its risk assessment for some insurance products such as surety bonds, the product family deposit bonds belong to, while issuers also ask for evidence of finance, equity, income and funds to complete. If your credit file or recent applications are already part of the home-loan story, coordinate the bond application with the purchase finance rather than treating them as unrelated applications.
Sources: QBE Australia, Privacy Policy, published 2026, and Deposit Bond Australia, product information, both read 23 September 2026. Issuer processes vary.The equity route suits an owner whose financials or loan approval are not ready by exchange; the income route suits a business with two clean years of returns. For a company purchase, the directors' guarantees both issuers require mean a called bond can be recovered from them personally.
QBE's target market document is more precise about capacity. It places outside the target market anyone who "cannot demonstrate their financial capacity to pay 100% of the purchase price plus costs (Stamp Duty and Conveyancing fees) at date of application". It gives examples of the buyers it is meant for, including those "awaiting funds from an existing sale", those "borrowing 100% of the purchase price" and those "with equity but minimal liquidity". Those three describe a lot of self-employed buyers: the money exists, it is just not sitting in cash on exchange day.
Deposit Bond Australia sets its bar higher: it asks purchasers to prove capacity to pay 105 per cent of the purchase price before exchanging. It also does not require a property you are selling to be listed or exchanged when you apply, assessing the equity as current market value less the mortgage shown on current statements. That matters for an owner buying before selling. Source: Deposit Bond Australia, Deposit bonds product information, read 23 September 2026. One issuer.
The same document names the purchases a bond will not work for. A vendor that "will only accept a cash deposit". A deposit "of more than 10%" of the price. A vendor that "requires an early release of the deposit". Non-Australian residents are also outside it. Source: QBE Insurance (Australia) Limited, Target Market Determination, Deposit Bonds, QM9261-1021, first published 5 October 2021, read 23 September 2026. One issuer's document.
For Victorian readers, early release of a cash deposit before completion runs through a section 27 statement. LPLC explains that section 27 of the Sale of Land Act 1962 (Vic) "permits the early release of the deposit prior to settlement to a vendor under a contract of sale of land in certain prescribed circumstances", and that it is a statutory mechanism that must be strictly followed. A vendor that plans to use a section 27 release is telling you it needs cash, which a bond cannot give it. Source: LPLC, Early release of a deposit is a statutory, not contractual, right, last updated 15 June 2026. Victoria only.
What the issuer checks
- That the vendor accepts a bond instead of cash
- That the deposit is 10 per cent of the price or less
- Evidence that the full price and costs will be paid at settlement, or enough equity in property you own
- Your residency
- Who the buyer is: an individual, a company or a trust
- For a company buyer, directors' guarantees, which both issuers we checked require
What trips up a self-employed application
- Income or finance evidence that is not ready at exchange, with no equity route to fall back on
- A vendor or a contract that only takes cash
- A vendor who wants the deposit released early
- A deposit above 10 per cent of the price
- Relying on a sale or a refinance that has not happened yet, with no evidence of it
If the evidence problem is the one you recognise, it is the same evidence a lender will want for the purchase itself, so sort it once. The routes for business owners without two clean years of returns are set out in low doc business lending, and you can check where you stand before you commit to an exchange date.
From our broking, indicative
What we see when self-employed buyers plan a purchase around a deposit bond:
- The self-employed application that stalls is usually the one where the buyer cannot yet show how the full price will be paid at settlement, not the one with a thin tax return.
- A bond qualified on equity gets the buyer to exchange, but it does not replace the loan that has to fund settlement. That loan still needs its own evidence.
- The most common late surprise is a contract, or a vendor, that will not take a bond, discovered after the buyer has planned around one.
General information from Switchboard's broking experience. Not a quote, an offer or an approval assessment. Issuers and lenders set their own criteria.
On a commercial purchase the deposit question arrives earlier and is often larger, which is covered in how much deposit a commercial purchase needs.
Can you borrow the deposit instead of using a bond?
Yes, but a borrowed deposit is a loan the main lender will count, and whether consumer credit law applies depends on who is borrowing and why.
There are three usual ways to borrow a deposit. You can release equity from a property you already own, through a top-up or a cash-out on your existing loan, which is what equity release and refinance covers. You can take a second mortgage behind an existing first mortgage. Or, for business-purpose purchases only, you can take a short-term caveat or private loan. Each one puts cash in the vendor's hands at exchange, which a bond does not, and each one is debt from the day it is drawn.
Is a bank guarantee the same as a deposit bond?
No. Both can give the vendor security without you handing over the deposit in cash, but they are different instruments. A bank guarantee is issued by a bank and commonly requires the customer to provide cash, property or other security to the bank. A deposit bond is a surety guarantee issued through an insurer or specialist provider and, at some issuers, is unsecured. The contract and vendor still have to accept whichever instrument you propose.
Sources: Commonwealth Bank, Bank Guarantee, ANZ, Bank guarantees, and QBE, Residential and Commercial Deposit Bonds, read 23 September 2026. Bank security and pricing depend on the bank and customer.The credit law line is simple to state. Credit to an individual to buy residential property, whether a home or an investment, is regulated by the National Credit Code, and a business purpose declaration does not change that if the lender knew, or should have known, what the money was really for; what a business purpose declaration is is covered in its own guide. Source: National Credit Code, sections 5(1)(b) and 13(3), Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), compilation of 1 July 2026, read 23 September 2026. General information, not legal advice.
Then there is the main lender. Whatever you borrow for the deposit sits on your credit file and in the servicing picture when the purchase loan is assessed, so the deposit loan and the purchase loan are really one application. The usable-equity arithmetic belongs to how much equity a lender will release and is not recomputed here.
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| Option | Whose money reaches the vendor | Who has to say yes | Loan or not, and when the credit law applies | Where it stops working |
|---|---|---|---|---|
| Deposit bond | None, unless the bond is called; then the insurer pays | The vendor, and the issuer | Not a loan. If it is called, you owe the insurer under your indemnity | Vendor wants cash or early release; deposit above 10 per cent; bond expires before completion |
| Bank guarantee | None unless the guarantee is called; then the bank pays the vendor up to the guaranteed amount | The vendor, and the issuing bank | A bank guarantee facility, commonly backed by cash, property or other security; separate from the purchase loan | The bank will not issue it, the security ties up cash or equity, or the vendor will not accept it |
| Equity release or top-up on an existing loan | Your existing lender's funds, paid as a cash deposit | Your existing lender | A loan. Regulated when an individual borrows for residential property, investment included | The valuation or servicing will not support the extra debt |
| Second mortgage | A second lender's funds | The second lender | A loan. Same regulated test for individuals buying residential property | The cost, and the main lender counting it as debt |
| Caveat or short-term private loan, business purpose only | A private lender's funds | The private lender | A loan. An individual buying residential property cannot use a business-purpose declaration to take it outside the Code | A short term that needs a clear exit; never available for a home deposit |
| Cash from the business | Your own funds | Nobody else | Not a loan | Drains working capital and may weaken the servicing picture |
The caveat and private-loan row is for business-purpose purchases only, such as a company buying its own premises, where private lending and caveat loans can bridge a deposit gap on a short term with a clear exit.
How do the NSW and Victorian contracts treat a deposit bond that is about to expire?
Both standard contracts deal with expiry, but in different ways. NSW makes the buyer replace the bond before it runs out; Victoria requires the bond to run at least 45 days past the settlement date in the first place.
Start with what a bond is to the insurer. If the bond is properly called, the insurer has to pay. QBE's product page says it is obliged to pay the vendor within a set period after demand, "even if a dispute arises between you and the vendor", and that you sign "an indemnity; a legally binding document that gives us the right to recover the amount of the bond from you if you default". So a dispute with the vendor does not stop the payment. It only decides whether you can later recover it. Source: QBE, Residential and Commercial Deposit Bonds, product page, read 23 September 2026. One issuer.
New South Wales. Under the Law Society and REINSW standard contract, a deposit bond is one where the issuer, the expiry date and the amount are each approved by the vendor. If completion has not happened by the date 14 days before the bond expires, the buyer must serve a replacement bond at least 7 days before expiry, and "The time for service is essential." The vendor must approve a replacement from the same issuer, for the same amount, expiring at least three months after it is issued. Missing the replacement entitles the vendor to terminate. On termination the vendor can normally "immediately demand payment from the issuer". The bond amount does not form part of the price for the completion payment, and the vendor gives the original bond back on completion. Source: Law Society of NSW and REINSW, Contract for the Sale and Purchase of Land, 2026 edition, clauses 1.1 and 3.3 to 3.10, sample read 23 September 2026. Standard form; special conditions can amend it.
Victoria. Under the LIV contract, general condition 15.2 defines a deposit bond as an irrevocable undertaking to pay on demand an amount equal to the deposit or any unpaid part of it, and requires that a "deposit bond must have an expiry date at least 45 days after the due date for settlement". LPLC explains that the 45 days protect the vendor's time to call the bond after a rescission notice, which typically gives 14 days, and warns that once a bond has expired, "the vendor has no recourse to the deposit bond". It also warns that extending the settlement date can leave an existing bond too short. Source: LPLC, Timing issues with deposit bonds and Contracts of Sale of Land, last updated 16 June 2026. Victorian contract; special conditions can change it.
Does extending settlement automatically extend the deposit bond?
No. Moving the settlement date does not itself change the expiry date printed on the bond. You have two separate problems to solve: the replacement or extended bond must still satisfy the contract, and the issuer must agree to keep covering the transaction for the longer period. Deposit Bond Australia says applications lodged with finance approved for settlement have a maximum six-month bond term because loan approvals can lapse, and purchasers may need updated supporting financial statements to extend. Deposit Power separately says a bond can often be renewed or extended for an additional fee. Those are issuer policies, not universal rules.
Sources: Deposit Bond Australia, Product Information and Deposit Power, What Is a Deposit Bond and How Does It Work?, read 23 September 2026. Issuer policies differ, so check the bond terms and obtain written confirmation before agreeing to a later settlement date.Either standard contract can be amended by special conditions, and many off the plan contracts are. Read the contract you are signing, not the standard form.
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| Contract rule | NSW standard contract, 2026 edition | Victorian LIV contract, general condition 15 |
|---|---|---|
| What counts as a bond | The issuer, the expiry date and the amount must each be approved by the vendor (cl 1.1) | An irrevocable undertaking to pay on demand an amount equal to the deposit or any unpaid part of it (GC 15.2, per LPLC) |
| Expiry | If completion has not happened 14 days before expiry, the buyer must serve a replacement bond at least 7 days before expiry; time is essential (cl 3.3) | The bond must expire at least 45 days after the due date for settlement (GC 15.2, per LPLC) |
| If the bond has expired | Failing to serve a replacement entitles the vendor to terminate (cl 3.3 to 3.10) | Once expired, the vendor has no recourse to the bond (LPLC) |
| At settlement | The bond amount does not form part of the price for the completion payment, and the vendor returns the bond on completion (cl 3.8, 3.9) | Not covered in the LPLC guidance cited here; check general condition 15 of the contract you sign |
| If the buyer defaults | The vendor can normally demand payment from the issuer immediately on termination (cl 3.10.1) | Payment is triggered if the purchaser defaults or the vendor is otherwise entitled to the deposit (GC 15.6, per LPLC) |
Three questions sit next to this one and each has its own guide. How a long or delayed completion is paid for belongs to funding a long or delayed completion, and a contract that allows it is a deferred settlement. What happens to the contract itself if the project stalls belongs to an off-the-plan sunset date.
What do you still have to fund between exchange and settlement?
A deposit bond covers the deposit and nothing else. Between exchange and settlement you still have to fund the stamp duty, keep the bond valid if dates move, keep your finance valid until drawdown, and have the full price plus costs ready on settlement day.
Can you use a deposit bond for an off-the-plan property?
Yes, if the developer accepts it before the contract is signed. This is one of the main uses for a long-term bond because completion may be years away, but the long gap creates a second problem: your purchase finance and valuation may need to be reassessed close to completion. The bond solves the exchange deposit only. It does not lock in today's loan approval, today's valuation or today's income position until the project settles.
Sources: NSW Government, Buying property off the plan and QBE, Residential and Commercial Deposit Bonds, read 23 September 2026. NSW says a bank guarantee or deposit bond can replace cash only if the developer agrees before signing. QBE describes long-term bonds for off-the-plan purchases. Contract and issuer terms vary.If the completion date is uncertain, read how long or delayed completion finance is managed and check the project's sunset clause before you rely on an expiry date.
What happens to the deposit bond if an off-the-plan contract is rescinded?
It depends on the contract and the bond terms. Under Deposit Power's current terms, the bond expires if the contract is terminated or rescinded, the vendor accepts that termination or rescission in writing, and the purchaser is entitled to a refund of the deposit. That does not mean every deposit bond disappears automatically when a property contract ends. The conveyancer should confirm that the rescission is effective under the contract, what happens to the deposit, and what notice or evidence the issuer requires.
Source: Deposit Power, Deposit Bond FAQs, read 23 September 2026. This is one issuer's bond wording; other bonds and special conditions can differ.The duty is the cost buyers most often forget. In NSW, Revenue NSW says transfer duty must normally be paid within three months of signing a contract for the sale of land. An eligible off the plan purchase of a home the buyer will live in can get up to 12 more months, but the deferral does not apply to vacant land or commercial property. In Queensland, the Queensland Revenue Office says the liability date is usually the contract date, not the settlement date; when a solicitor lodges as a self assessor, the documents go in within 30 days of that date and the duty is paid within 14 days after. So on an NSW settlement longer than three months, or a Queensland settlement longer than that 30 plus 14 day timetable, the duty is a cash call before settlement, bond or no bond. In Victoria, the State Revenue Office says the duty on an electronic settlement is transferred to it through the settlement workspace at the time of settlement, so it is part of the settlement-day amount. Sources: Revenue NSW, Off the plan agreements and contracts, last updated 28 May 2026, Queensland Revenue Office, Transfer duty, and State Revenue Office Victoria, Complex Duties Online transactions, both read 23 September 2026. General information, not tax advice.
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| Stage | What has to be in place | What goes wrong |
|---|---|---|
| Before you bid or sign | The agent's written confirmation that the vendor takes a bond, the issuer's approval, and your conveyancer's check of any special conditions on bonds | The bond is refused on auction day, or the contract changes the bond rules |
| At exchange | A bond for the right amount, from an issuer and with an expiry date the vendor has approved | In NSW, a bond the vendor has not approved does not meet the contract definition |
| Duty date | In NSW, normally within three months of signing; in Queensland, tied to the contract date, with a self assessor lodging within 30 days and paying 14 days after; in Victoria, paid through the settlement | A long NSW or Queensland settlement brings the duty forward, and the bond does not cover it |
| Before the bond expires | In NSW, a replacement bond served at least 7 days before expiry if completion has not happened 14 days out; in Victoria, a bond that already runs 45 days past settlement; plus any extension, fee or updated financial evidence the issuer requires | A delay or agreed extension pushes settlement past the bond's life, or the issuer will not extend without reassessment |
| Weeks before settlement | A loan approval that is still current, a valuation at or above the price, and any updated financials the lender asks for | The approval lapses, the valuation comes in low, or the income evidence is now out of date |
| Settlement day | The full purchase price, any duty not yet paid, and your costs | A shortfall, which is the point at which the bond can be called |
From our broking, indicative
Where settlements with a deposit bond come under pressure:
- On a long settlement, the loan approval from exchange day may not survive to completion, and a self-employed buyer is often asked for newer financials than the ones first assessed.
- On off the plan purchases, the lender values the finished property at settlement. If the valuation lands below the contract price, the loan is sized on the lower figure and the gap is the buyer's to fund.
- Buyers who are also selling usually plan around the sale date, and the sale is the date that most often moves.
General information from Switchboard's broking experience. Not a quote, an offer or an approval assessment. Lenders set their own valuation and evidence requirements.
If any of those pressures applies to you, the time to plan the completion funding is at exchange, not in the last fortnight. Talk to a broker about how the settlement will be funded before you rely on the bond.
What happens if you cannot settle on time?
If you cannot settle and the contract is ended for your default, the vendor can call the deposit bond, the insurer pays the vendor, and the insurer then recovers the bond amount from you under your indemnity. Late settlement usually costs you before it gets that far, so the gap needs closing while there is still time.
What happens if your finance falls through after exchange?
A deposit bond does not give you a separate right to cancel because your finance has failed. If the contract is unconditional, or any finance condition has expired or does not protect your situation, losing the loan does not by itself end the purchase. If a valid finance condition still applies, your rights depend on its exact wording and notice deadlines. At auction the risk is sharper: Australian consumer guidance warns there is generally no cooling-off period, and Victorian guidance says a successful bidder cannot add a finance condition after the auction unless the seller agrees.
Sources: Moneysmart, Buying a house, NSW Government, Contracts and deposits when buying property in NSW, and Consumer Affairs Victoria, Buying property at auction, read 23 September 2026. Contract rights vary by state and by the contract you signed, so get legal advice immediately.If finance fails after exchange, work through this in order
- Call your conveyancer or solicitor first. Ask what the contract says about finance, cooling off, default notices, settlement extensions and the deposit bond. Do not rely on an agent's verbal view.
- Find the exact reason the loan failed. A low valuation, expired approval, changed income evidence, servicing shortfall and a credit issue are different problems with different fixes.
- Put a dollar figure on the gap. Work out the lender's available advance, cash and equity already available, duty and costs, and the amount still missing on settlement day.
- Check the bond expiry before moving the date. An extension of settlement can create a second problem if the existing bond no longer runs long enough under the contract.
- Only then assess a replacement funding route. That may be a reworked home loan, bridging finance, equity release or, for a genuine business-purpose purchase, short-term private finance. Each route still has to settle inside the legal timetable.
General process guidance only. Your solicitor or conveyancer deals with the contract; your broker or lender deals with the replacement finance.
In NSW, the vendor can normally demand payment from the issuer immediately on termination (cl 3.10.1 of the standard contract). In Victoria, payment is triggered if the purchaser defaults or the vendor is otherwise entitled to the deposit, and LPLC notes a rescission notice typically gives 14 days. One issuer's product page states that once the underwriter has paid, it has full legal right of recovery against the purchasers and any guarantors, so for a company buyer the directors who guaranteed the bond are exposed as well. Source: Deposit Bond Australia, Deposit bonds product information, read 23 September 2026. One issuer.
The costs of running late are covered in penalty interest for a late settlement date.
Ways to close a settlement gap, and when each one fits
- Ask for an extension Agree a new date in writing, and check the bond still runs long enough under your contract before you sign it.
- Bridge a sale that has slipped Short-term finance while your existing property sells, compared in bridging loans and their alternatives.
- Release equity you already hold A top-up or cash-out on property you own, through equity release and refinance. Regulated when an individual buys residential property.
- Fund a company purchase short term For business-purpose purchases only, such as a company buying its premises, through caveat loans with a clear exit.
Each route depends on the lender's assessment and the time left before settlement. Start the conversation when the risk appears, not when the notice arrives.
A deposit bond replaces the contract deposit at exchange with an insurer's guarantee. It does not replace the cash or equity contribution your home-loan lender requires, reduce the purchase price, cover duty, fix a low valuation or protect you if finance fails. Issuers still underwrite the application, and some may review credit history. Companies and trusts can apply at some issuers, but guarantees can leave directors personally exposed. A bank guarantee is a different alternative that is issued by a bank and can tie up cash or property security. On long and off-the-plan settlements, the bond expiry, the loan approval and the final valuation all need to survive to completion.
Key takeaway: a deposit bond solves a timing problem at exchange, not the lender-deposit, valuation or settlement problem. Plan the entire funds-to-complete path before you sign.Frequently asked questions
No. A deposit bond is a guarantee to the vendor, not a loan to you. But you sign an indemnity when the bond is issued, so if the bond is called, the insurer pays the vendor and then recovers the amount from you.
A deposit bond costs a one-off fee that the issuer quotes for your purchase, not interest. One issuer prices a short-term bond of up to six months as a percentage of the bond amount and a long-term bond on the amount and the term, with no ongoing charges, and another publishes an annualised cost of 1.5 to 3.3 per cent, higher for complex applications. Get a written quote before you rely on a figure. If you are weighing a bond against short-term finance, read how the cost of a bond compares with a bridging loan.
At one major issuer, most short-term bond applications are approved instantly online, and long-term bonds may take a few hours if more information is needed. The bond is issued digitally once the fee is paid. The real deadline is having your evidence ready and the vendor's acceptance confirmed before auction or exchange day.
Yes, if the vendor agrees before the auction. Issuers offer short-term bonds for auction purchases, but under the NSW standard contract the vendor must approve the issuer, the expiry date and the amount of the bond, so confirm acceptance with the agent in writing before you bid.
Yes, a vendor can refuse a deposit bond. Under the NSW standard contract the vendor must approve the issuer, the expiry date and the amount of the bond, and a vendor that will only take a cash deposit sits outside at least one issuer's published target market.
Not always. One issuer accepts either evidence that you will have the funds to complete, such as a loan approval letter, a savings statement or evidence of a financial gift, or enough equity in property you already own. Another accepts an unconditional finance approval for bonds of up to six months, or assesses you without one on equity in property, shares or term deposits plus income to service your debts. Ask the issuer which evidence it accepts for your purchase.
Yes, if the issuer accepts your evidence. One issuer's published test is whether you can show you can pay the full price plus costs at the date of application, and another will qualify short-term bonds on equity in property you own. Another issuer asks self-employed applicants without a finance approval for two past financial years of tax returns, notices of assessment and BAS. Each issuer sets its own criteria. How the finance behind the purchase is assessed is covered in low doc business lending.
No. A deposit bond stands in for the deposit only. In NSW, transfer duty must normally be paid within three months of signing the contract, so on a longer settlement the duty can fall due before settlement. Revenue NSW allows up to 12 more months only for eligible off the plan homes the buyer will live in, not for vacant land or commercial property. In Queensland the liability date is usually the contract date, not settlement.
Deposit bonds carry two main risks for the buyer. The first is expiry before completion, which the NSW and Victorian contracts deal with in different ways. The second is owing the insurer the full bond amount if the bond is called because you default. Both come back to the same point: the whole price, plus duty and costs, still has to be funded.
Under the NSW standard contract the vendor gives the original deposit bond back on completion. Because the bond amount does not form part of the price for the completion payment, you pay the whole purchase price at the settlement date, not the price less a deposit.
No settlement extension automatically extends the bond. Check the expiry date before you agree to a new settlement date. Under the NSW standard contract the buyer must serve a replacement bond if completion has not happened 14 days before expiry, and in Victoria the bond must expire at least 45 days after the due date for settlement. The issuer may also require a fee, updated financial information or another assessment before extending or replacing the bond.
A deposit bond cannot be released early the way a cash deposit can. One issuer's target market document places buyers whose vendor requires early release of the deposit outside its target market. In Victoria, early release of a cash deposit runs through a section 27 statement under the Sale of Land Act.
Equity in another property can fund your deposit if a lender releases it to you as cash, but that release is a new loan the main lender will count as debt. At least one issuer also accepts equity in property you own as the evidence for the bond itself, which adds no loan. The limits and evidence behind a release are set out in how much equity a lender will release.
No. Borrowing a home deposit is not a business purpose, and under the National Credit Code a business purpose declaration is ineffective if the lender knew, or should have known, what the money was really for. What a declaration is, and when it holds, is covered in what a business purpose declaration is.
Get specialist SMSF advice before an SMSF relies on a deposit bond. The ATO says an asset bought under a limited recourse borrowing arrangement cannot be subject to a charge other than as provided in relation to that borrowing, and its rules page does not address deposit bonds. The wider borrowing path is covered in how an SMSF buys commercial property with a non-bank loan.
Yes, at issuers that accept corporate buyers. Both issuers we checked accept company buyers and require guarantees: one requires director and shareholder guarantees on every corporate application, and the other requires company directors, including directors of a company acting as trustee, to sign a guarantee and indemnity. A called bond can then be recovered from the purchaser and any guarantor. Before a company exchanges on a bond, the directors should understand they are personally exposed if settlement fails.
Yes, at least one issuer allows it. Its product page gives the example of a 5 per cent deposit bond combined with 5 per cent in cash, and says this is particularly useful for off the plan purchases. The vendor still has to accept the arrangement under the contract.
It depends on the contracts. One issuer says its bonds suit a house and land package where the vendor is also the builder under a single contract of sale, but where there are separate land and building contracts the bond can only be used for the land component.
No. A deposit bond replaces the contract deposit paid or promised to the vendor at exchange. It does not create equity or replace the cash or equity contribution your home-loan lender requires. Your lender still assesses the loan against its valuation, LVR, servicing and funds to complete.
Potentially for the contract deposit if the vendor accepts it, but the bond does not replace the Scheme's required saved contribution. The Australian Government 5% Deposit Scheme requires eligible first-home buyers to have at least 5% of the lender-assessed property value, or at least 2% for eligible single parents or legal guardians. Confirm the contract-deposit arrangement with the vendor and participating lender before exchange.
Sometimes, but there is no universal refund rule. One major issuer considers a refund only if the bond has not been given to the vendor and you ask within 30 days of issue, less an administration fee of $290 for a short-term bond or $700 for a long-term bond, and may consider a rebate on a long-term bond that settles with at least six months left to run. Check the issuer's written refund policy before you pay the fee.
If the winning price makes the required contract deposit larger than the bond amount, the bond can be too small. Do not assume it automatically increases. The vendor may agree to a lower deposit or a split between cash and a deposit bond, and at least one current issuer supports split deposits, but the vendor and issuer must accept the actual arrangement before you rely on it.
It depends on the contract and the bond terms. One current issuer's terms say the bond expires if the contract is terminated or rescinded, the vendor accepts that outcome in writing, and the buyer is entitled to a refund of the deposit. Do not assume rescission automatically cancels every bond. Have the conveyancer confirm the contractual position and tell the issuer what has happened.
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